What Happens When You File Business Bankruptcy
When a Chapter 7 bankruptcy is filed, the court appoints a trustee who essentially ‘closes down’ the business by selling assets, collecting receivables, and distributing proceeds to creditors.
When a Chapter 11 bankruptcy is filed, the process is more involved. A typical scenario follows.
- Filing Chapter 11 automatically stops creditors from taking any action. If lenders or taxing bodies have liens against your receivables, negotiations will begin to allow you access to the cash proceeds so you can continue to run your business.
- Once you have negotiated to retain sufficient cash to operate, you and your attorney will begin work on a plan of reorganization. You have at least four months to complete this plan, the purpose of which is to find a way to repay your creditors enough to satisfy them and the court. The plan is based on what’s realistic for your business and what your creditors are likely to accept.
- Once the plan of reorganization is complete, it is sent to your creditors for a vote. As long as the plan complies with certain court requirements and is approved by enough of your creditors, it will take effect. Until your plan is approved, you will need the court’s approval before incurring new debt, hiring professionals such as lawyers and accountants, and settling litigation. Your attorney from Grochocinski, Grochocinski and Lloyd can assist you with this.
- Assuming your creditors approve, the court confirms your plan and your business begins life in its new form. You have a new contract with your creditors and you begin making payments in accordance with the plan. If your creditors do not approve the plan, you will have more opportunities to negotiate. If at some point, you determine that you cannot satisfy your creditors and continue to operate the business, you can convert your case to a Chapter 7.
